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A Case For Debt Cancellation (Summary)

Unlocking the Chains of Debt

The Third World (developing) countries sought foreign debt to increase the productive potential (capacity) of their economies. Although productive potential of the economies increased to some extent, yet it promoted “debt seeking behavior” a great deal. This behavior is closely associated with unlimited desires which in turn pump up artificial demand. Since the foreign debt was dollar denominated, the poor developing economies did not have the dollar earning capacity. For instance, the prices of many commodities produced by poorer countries have fallen, sometimes drastically due to international competition since 1980s. Poor countries thus have less hard currency to service their debts and the ‘knock-on’ impact on exchange rates meant that poor country debts (often counted in foreign currency like US dollars) ballooned still further in real terms for the country.

The statistics show that the developing country debts swelled from $70 billion in 1970 to $1340 billion in 1990, $1970 billion in 2000, and $3,545 billion in year 2009. Thus the debt burden in absolute terms increased almost 40 times in 35 years . On the contrary, the share of developing countries in the world GDP slightly increased from 15.4% in 1970 to around 22% in 2010.